DUBAI: The United Kingdom, Indonesia and Hong Kong governments are each set to launch their debut sovereign Islamic bonds, or sukuk, by December this year, helping build benchmarks for a market that could be worth as much as $100bn by 2010, a senior executive at Standard Chartered said yesterday.
“We will see Hong Kong, Indonesia and UK sovereign sukuk before December this year. The governments are very keen,” Afaq Khan, chief executive for Islamic finance at Standard Chartered told Zaywa Dow Jones in an interview in Dubai.
Khan, who is a member of the Islamic finance experts committees advising the three governments on the Islamic bonds, said studies are being carried out and steps are being taken to prepare the regulatory framework for the debuts.
The Indonesian central bank has already announced plans to issue sukuk worth $500mn in 2008 and is co-operating with the Jeddah-based Islamic Development Bank on bringing the issue to the market.
The UK started consultations and a feasibility study last year to explore how it may structure a government-backed sukuk.Interest in Islamic finance has been rising in line with the value of global Shariah-compliant assets amid growing demand for products such as sukuk, Islamic insurance contracts known as takaful as well as Islamic mortgages.
The Islamic finance market is estimated by Moody’s Investor Services to be worth around $700bn globally.
Demand for Shariah-compliant bonds in particular has surged as a rising number of the world’s 1.5bn Muslims seek investments that comply with their belief.
Sukuk are securities that comply with the Islamic law and its investment principles, which prohibits the charging or paying of interest.
There are also growing signs of sovereign sukuk to be launched by the governments of Gulf Arab states such as Qatar and the United Arab Emirates, Khan said.
“Arab Gulf governments need to issue sovereign sukuk. Islamic banks are looking for instruments where they can park their excess liquidity,” he said. Sovereign sukuk would give Muslims in those countries access to government-backed fixed-income products and set a benchmark for investors and corporate borrowers to weigh risk, Khan added.
Moody’s reported this month that a number of GCC governments might be considering issuing sukuk.
“Given that most GCC currencies will continue to be pegged to the US dollar in 2008, and due to inflationary pressures and the need to create benchmarks against which to value corporate sukuk, a number of GCC governments might be considering issuing sukuk,” Moody’s said.
Gulf borrowers raised about $19bn in sukuk in 2007, overtaking sales in Asian Islamic finance hub Malaysia for the first time. – Zawya Dow Jones